Toyota: Apology but no new recall

By Chris Isidore, senior writerFebruary 5, 2010: 2:07 PM ET

NEW YORK (CNNMoney.com) -- Toyota Motor chief executive Akio Toyoda apologized Friday for the problems that led to the company's recall of more than 8 million cars. But he did not announce any solution for brake problems of its popular Prius hybrid.

Toyoda, the grandson of the company's founder, made his first public appearance in the two weeks that the company has faced a growing crisis over the safety and quality of its vehicles.

The recall affected 8.1 million vehicles worldwide and will cost the company an estimated $2 billion in repair costs and lost sales due to a sticking accelerator. Toyota has not said how much the new problems with the braking system in the Prius will cost it, though.

Toyoda said an investigation of the Prius problems is under way, and a decision on whether there will be another recall will be announced as soon as possible.

The company also announced Friday it is looking at the brake systems of the latest Lexus hybrid vehicles as well as a Japanese model called the Sai -- because they use the same system as the one on the 2010 Prius.

But Toyoda denied the company has been trying to hide problems with the brakes from safety officials in the United States and Japan. Still, he admitted Toyota needed to do more to assure customers about the safety of its vehicles.

"I feel we are in stormy weather," he said. "Under this situation, [we] must regain customer trust. Tackle the problem. My role is to carry it out. We lacked customer perspective. It's very unfortunate."

Not going far enough. But one expert said Toyota and its chief made a mistake by not announcing a recall for the Prius, especially since it now is clear there is a problem that will eventually need to be fixed.

"What we heard this morning was more foot dragging," said Michelle Krebs, senior analyst for auto sales Web site Edmunds.com. "They still are not very forthcoming. I think it'd be in their best interest to do a recall, and get it all behind them."

Other experts agreed that Toyota is suffering greater damage by not getting all the bad news out as quickly as possible.

"For reasons we may never learn, Toyota appears to be pulling their bandage very slowly, and therefore keeping their recall situation...firmly in the public eye," said James Bell, executive market analyst for Kelley Blue Book.

Krebs said that while most Toyota customers appear to be staying loyal to the brand for now, the damage being done to its image could hit future sales. She believes Toyota's estimates of a loss of 80,000 sales in North America and another 20,000 in Europe due to the recall are probably too low.

"My impression is they are fairly tone deaf about how significant this is in the U.S.," she said. "I don't think they have a good sense of what it's going to cost them in terms of reputation and sales."

She added that problems with the Prius are a particularly tough blow to Toyota -- even though the number of hybrids affected is insignificant compared to the 8.1 million vehicles recalled due to the gas pedal concerns.

"The Prius is so important to them. It's the pinnacle of their technological knowledge and engineering prowess. Now that image has been tarnished," she said.

Toyoda has faced harsh criticism over the last two weeks about his lack of public appearances during the crisis.Krebs said it was important for him to finally speak to the public.

The tone of the news conference, which took place late Friday night in Japan, was very out of character with what is normally seen at corporate press conferences in Japan.Reporters did not show the typical deference to a top executive. Some demanded answers about why there is no leadership and why the company was dodging questions.

Toyoda said the company would set up a committee to examine problems that led to the recall and said the company would cooperate with U.S. authorities who are looking into problems with Toyota vehicles.

"Believe me, Toyota's cars are safe," he said.

No solution yet for brake problem. The company has admitted it had a problem with the software controlling the anti-lock braking system of the 2010 model year Prius. The company said earlier this week that it has changed the software for cars produced since January, and it is looking into what to do with the vehicles already on the road.

Jesse Toprak, analyst with TrueCar.com, said the delay in announcing a recall for the Prius is a sign that fixing vehicles already on the road won't be as simple as fixing ones coming off the assembly line. But he said Toyota would be better off announcing the recall even if a solution is not finalized.

"Normally it would have been better off to wait for a solution. It doesn't help your image to say you don't know how to fix your own cars. But these are not normal times for Toyota," he said.

The 2010 model year Prius went on sale in the middle of last year. There are an estimated 37,000 of the cars on the road in the United States, and more than 200,000 worldwide. It is the best-selling vehicle in Japan and Toyota's fourth-best selling model in the U.S.

There have been 124 reports of problems with the brakes on the Prius in the United States, according to the National Highway Transportation Safety Administration, which Thursday announced it had launched a formal defect investigation into the car. There have been reports of four accidents involving the Prius brakes, two of which had injuries, although there have been no reported fatalities.

Toyota, which achieved steady market share growth in the United States due to its reputation of strong vehicle quality and safety, has been criticized by U.S. Transportation Secretary Ray LaHood for being slow to respond to the latest problems. LaHood said Toyota did not move on the accelerator recall until pushed to do so by U.S. safety officials.

The Prius brake problem causes a delay of about a second in the brakes engaging, but during a second a car traveling 60 m.p.h. can travel almost 100 feet.

While Toyota (TM) has far greater financial resources than most of its rivals, especially its U.S. rivals General Motors, Ford Motor (F, Fortune 500) and Chrysler Group, the quality issues do pose a financial challenge for the company. Friday credit rating agency Standard & Poor's placed its debt on credit watch, meaning it faces the risk of a downgrade that could raise its borrowing costs.

"Standard & Poor's believes that these developments may affect the company's reputation for quality, weakening its competitive position," it said in the announcement.